Entrepreneurship: Recognizing a Potential Market

Recognizing a Potential Market

• Understanding key concepts, underlying principles, and processes for developing a business plan is essential.
• The goals of this lesson include:
  • Analyzing the market need
  • Determining possible products or services to meet that need
  • Screening solutions based on viability, profitability, and customer requirements
  • Selecting the best product or service for the market need
  • Finalizing a detailed business plan

Entrepreneurship Basics

• An entrepreneur must recognize financial risk, and ensure their business works by removing hindrances and distractions.
• Successful entrepreneurs maintain discipline to achieve daily objectives
• Having entrepreneurial qualities presents the opportunity to start a small business after studying required factors

Who Can Start a Business

• Anyone, whether an existing or new entrepreneur, with or without a business background, from any area, can start a small business.

Arranging Capital

• Entrepreneurs must analyze required capital amount and duration for the business.
• Money for machinery, buildings, equipment is considered fixed capital.
• Money for raw materials, wages, rent, utilities is working capital
• Finance can be raised through self-contribution, loans, or from friends and relatives.

Selecting the Right Business

• Launching a business begins with the entrepreneur considering potential business lines
• Business opportunities are considered based on market demands
• Before proceeding, ascertain the business's profitability and the capital investment needed.
• An entrepreneur must decide on a desirable business line having estimated profitability and assessed the risks.

Location Considerations

• Location selection requires special care; businesses can be in owned or rented premises, marketplaces, commercial complexes, or industrial estates.
• Entrepreneurs should consider raw material sources, market proximity, labor availability, transportation, banking, and communication facilities, when deciding on a location.
• Factories are best located near raw materials and transport.
• Start retail businesses near residential areas or marketplaces.

Workforce Requirements

• Entrepreneurs cannot run a business alone and require employees.
• Skilled and semi-skilled workers are necessary for manufacturing work.
• Finding suitable employees is crucial before starting the business.

True or False Statements

• Capital is needed to set up a business.
• A business can be started in a residence or rented premises.
• An entrepreneur's business does not need to be close to it's customer base.
• There is no need for a work force.
• A business can only be run by individuals.
• Only rich people can have a business
• A sole proprietorship is run by many people.
• Skilled workers are needed to have a successful business.
• A retail business should be started near residential area or in a marketplace.
• Entrepreneurs need money to buy machinery, build, raw materials and to pay wages

Importance of Potential Market

• Identifying a potential market involves understanding its definition and importance, and helps grow a business
• A potential market constitutes the part of the entire market that a brand can capture in the future
• It targets customer demographics that may become regular customers through expansion.
• Business owners set a target customer base, which makes up the share in the market that is available to them.
• Identifying a potential market helps:
  • Secure the business's future by finding new customers
  • Encourage proactive growth and adaptation, attract investors and collaborators
  • Increase profit and create strategic plans
  • Allow for preparation for economic or market changes

Understanding and Researching Value Proposition

• Identifying potential markets ensures increased future profit as an ambitious entrepreneur
• A value proposition involves promising value that a consumer can expect to receive when choosing to buy a product.
• It declares a company's intent introducing the brand by specifying what it stands for, how it operates, and its business justification.
• A business or marketing statement articulates why a consumer should buy a product or service.
• If worded effectively, this statement can persuade consumers and add more value than other similar offerings.

Importance of Value Proposition

• A value proposition presents a company’s promise and easy-to-understand reason why a customer should buy a product or service
• It should explain how a product fulfills a need, detail added benefits, and prove superiority.
• Position a value proposition to appeal to customer's strongest decision-making drivers
• A company communicates the number one reason why a product or service is best for customers.
• Display value proposition at consumer touch points make it more intuitive, allowing a customer to read or hear the promise and understand delivered value without needing further explanation
• Successful value propositions should make use of a particular structure, containing things like catchy slogans, a headline, and a subheadline to give a specific example of why a particular product or service is superior
• Research may take place to determine which messages resonate best with their customers.
• Effective value proposition to increase conversion and revenue and involves understanding what the company can offer to its customers.

Developing an Effective Value Proposition:

• Understand Customer Benefits: List all benefits the company provides like product use, customer service, and delivery processes
• Connect Benefits to Value: Link the benefits to the value created for customers by determining how the benefits help them, address needs, reduce purchase time, and customer gain
• Target Audience: Identify the target segment for the product or service, including demographics, and tailor benefits to that audience
• Differentiate: Determine how the company differs from competitors by examining what direct competitors do and how the company can do it better or more efficiently

Refining and Implementing a Value Proposition

• Value proposition statements should be clear and concise, informing customers quickly about the company
• Customers also should be able to read over it in just a few brief seconds.
• Place these statements on website, logos, email signatures, brochures, and widely distribute it.
• Assess the value proposition's effectiveness by evaluating revenue increase, new customer acquisition, website traffic, newsletter engagement, and competitor responses.

Proven Templates for Value Proposition

• Geoff Moore's Value Positioning Statement outlines value positioning with a template: "For [target customer] who [statement of the need or opportunity], our [product/service name] is [product category] that [statement of benefit]."
• Venture Hacks' High-Concept Pitch involves [Proven industry example] for/of [new domain].
• Steve Blank's XYZ template involves "We help X do Y doing Z”.
• Vlaskovits & Cooper's CPS includes a Customer-Problem-Solution presentation
• Dave McClure's Elevator Ride contains a 3-step checklist like short, simple, memorable statements with 3 keywords and KISS
• David Cowan's Pitchcraft involves highlighting the problem, stating what the company sells upfront, distill differentiation, and establish credibility
• Eric Sink's Value Positioning emphasizes superlatives, labels, and qualifiers

Choosing Products

• Start-up entrepreneurs ask what to sell, and selecting the right product or service is critical for business success.
• A product impacts growth prospects positively or negatively.
• Some products can result in a compromised business from the start if it needs significant production capital, or if it is an over-saturated market.
• The correct product to sell means asking several questions to narrow down the focus and ensure success:
  • Primary Considerations: What criteria matter for product selection like financial benefit, investment requirements, and return? Meeting Customer Needs: Does the product address a need, offer value, and include benefits in product information?
  • Production Capability: Do you have the time, resources, and capability to produce your product, and can you scale up production as needed?
  • Market Size: Who will be your target customer base?
  • Regulatory Compliance: New rules and regulations may be sold immediately without the need for government approval or require permits, licenses and approval from the government.

Superiority of Products

• Having a unique selling proposition is one way to ensure a product is superior to competition
• Barriers to entry exist like high research and development, sunk costs, international trade restrictions, and patents protect small businesses from competition
• Estimate sales, growth, profits, and payback before starting a business to get clear on cost structure, break-even point, and ROI.

Components of a Business Plan

• A business plan is a document detailing the business, its offerings, strategy, goals, and actionable plan for achieving objectives and earning money
• The main objectives of a comprehensive business plan are:
  • Display the company's future financial performance and economic situation for the benefit of owners and investors.
  • Identify potential risks that may affect the company's growth and overall economic stability.
  • Forecast market trends, understand competitor behavior, define customer needs, and prioritize key business objectives.
  • Act as a key resource when developing budgets

Elements of a Business Plan

• Writing a business plan shouldn’t be complicated and includes 6 key components, with step-by-step guides
  • Executive Summary: Introduces the company, explains their offer, and lays out what they are looking for.
  • Opportunity: Includes the opportunity, an explanation of execution, company overview, and a financial plan.
  • Company Overview and Team: details the company's structure, and who the key team members are.
  • Financial Plan: The last plan chapter.

Executive Summary

• The executive summary's crucial components are a one-sentence business overview, problem statement, solution, target market info, competition analysis, company overview and team details, financial summary including a model, funding requirements including potential investment, and traction.
• Knowing a business's details aids executive summary creation
• The executive summary should serve as a clear, concise, and stand-alone document covering the plan's highlights.

Opportunity

• Should describe what customers are trying to solve something for, what their main pain point is, and how they're handling it at present.
• Solving the main problem for customers is crucial to the business.
• If you can’t pinpoint a problem that potential customers have, then you might not have a viable business concept.

Target Market and Competition

• Now that the problem is identified and a solution is in place, it’s important to know who you’re selling to is.
• Conduct a market analysis, which consists of identifying market segments and determining how large each segment is, and market research
• It is important to identify your ideal customer for each segment.
• Know who your competition is from the beginning, and what competitive advantages you can provide to your customers

Execution

• Now that we have completed the opportunity chapter, move on to the exectuion, and the steps required to make your business work.
• Elements such as the marketing/sales plan, operating procedures, the way you will measure you business’ success, and the key points you expect to achieve are key.
• Create positing statements and research various features and benefits.

Pricing

• The point where we determine what an acceptable value you’ll create with your offer is. A few steps:
  • Determine and cover associated costs
  • Primary and Secondary pricing
  • Matching Market Rate

Promotion and Advertising

• At this point we need to create an advertising portfolio consisting of things like brand positioning, and what the business has to offer
• A discussion about packaging, digital presence, and social media will need to take place

Key Metrics

• Milestones will be key to make the business plan work.
• A look at major accomplishments made to the current date will be a factor
• Key assumptions/risks are important to lay out in your business plan, in order to try to manage costs and advertising budget

Company Overview/Team

• An in depth look at personnel and if the correct positions are filled, or there are roles to fill may be a factor.
• This section should include :
  • Mission statement
  • Intellectual property
  • A review of your company’s legal structure and ownership
  • The business location
  • A brief history of the company if it’s an existing company

Finances and Economics

• Projecting monthly sales/revenue will be a crucial section that investors and personal bankers will want to see.
• The goal will be to look at projecting economic statements 3-5 years out.
• A personnel plan or look at payroll will be a crucial cost factor and will need to be in place for your business to function.
• It is also important to create an income statement/ profit/ loss statements to gauge where you think your earnings will be.
• Creating cash flow statements will be used to determine how much cash you have on hand.
• Having an exit strategy will be necessary for getting funds from personal bankers or investors as they’ll want to know the outcome possibilities.

Appendix

• Used as supplemental materials including charts, tables, definitions, legal notes or other relevant information that may not have been used.

Explore key concepts for business plan development, including market need analysis and product/service selection. Learn to screen solutions based on viability and profitability. Finalize a detailed business plan with entrepreneurial qualities to start a small business.